Amid Turmoil, Zynga Hit by a Downgrade

The stock is down about 3% this morning after a downgrade from PiperJaffray, which set the social-gaming company’s shares to “Neutral.”

With Zynga’s major hits like FarmVille and CityVille declining, Zynga’s potential cost-reduction efforts could worsen development quality, employee morale and further reduce the likelihood of a turnaround, according to PiperJaffray.

Its downgrade comes after a big survey showed that social gaming is unpopular among teens, which even though it does not represent the whole gaming population “nonetheless demonstrates a deterioration in the category that is likely to persist for several quarters, or longer.”

From PiperJaffray’s recent survey of nearly 8,000 teens, 83% indicated they don’t play games on sites like Facebook, and 90% said they intend to play fewer social games in the next 12 months. In the last survey in fall 2010, 56% of teens indicated they intended to play fewer social games, and 44% intended to play more, according to the research note.

The note also cast some doubts on the potential success of CityVille 2, a sequel to its big hit CityVille, which attracted more than 10 million players daily. CityVille 2 is essentially an upgraded 3D version of CityVille, but it faces headwinds as Zynga’s Web games business is encountering challenges.The note suggests Zynga’s strategy is “still to be determined.”

Zynga last week lowered its full-year guidance for 2012, saying it would report a loss next quarter. That sent shares sliding significantly, to the point that Zynga’s enterprise value is worth even less than its cash on hand.